Oil tax bill incentives questioned

Bill could result in added revenue, but includes industry write-offs

Posted: Thursday, February 23, 2006

On their first look at the governor's new oil tax reform bill, Alaska legislators worried about its proposed write-offs and tax credits.

The Murkowski administration's proposal, announced Tuesday, includes a tax hike that it said would result in an additional $773 million to the state at an oil price of $60 per barrel.

But legislators including Rep. Beth Kerttula, D-Juneau, wonder why the bill includes so many new write-offs and credits for the oil industry's past and future oil production tax payments.

On Wednesday, after House Bill 488 got a hearing in the House Resources Committee, Kerttula said she wondered whether those incentives actually will trigger more development.

That question is important to such basic things as Alaska's ability to pay for schools and roads, she said.

"It's our future," Kerttula said.

Similar questions are dogging Republicans in the Legislature, who queried a handful of state officials who gave their first presentations on the governor's reform bill at lengthy House and Senate committee hearings Wednesday.

"How do we create incentives that are effective and meaningful?" Rep. Norm Rokeberg, R-Anchorage, said after the House committee hearing.

Rokeberg said he worries about the bill's tax hike. That could actually decrease the industry's overall interest in investing in Alaska, he said.

"You don't tax yourself to prosperity," Rokeberg said.

BP spokesman Daren Beaudo agreed that the bill is "a significant tax hike," but he said it is "ultimately a tax structure that encourages investment in Alaska."

Rep. Paul Seaton, R-Homer, questioned state officials about why the bill allows the oil industry to deduct the cost of purchased assets - such as equipment on the North Slope - as far back as 2001. The cost-recovery period would run from 2001 to 2006, according to the bill.

Individual companies, for the first time, would not be taxed on their first $73 million of profits.

The oil industry also could receive both a 20 percent tax credit and a tax write-off on equipment and other costs at lease sites on the North Slope and elsewhere in Alaska.

The Murkowski administration's hope is to stimulate new exploration and development on the North Slope and other resource-rich areas of the state, such as the Tanana or Copper River basins, said Mike Menge, commissioner of the state Department of Natural Resources.

Menge noted that the tax incentives cannot reduce individual companies' tax payments to the state below zero. In other words, individual companies can pay no production tax, but they can't get a tax refund from the state.

Legislators have scheduled hearings on the bill every day for the rest of the week, continuing with additional hearings that will include testimony from oil industry officials next week. Public testimony on the bill will be allowed Saturday in the House and Senate Resources committees.



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